Play Meter

Don't fall into
the unemployment
insurance tax trap
By Joseph Arkin
Sometimes being
agoodguy
can cost you money
74
Businesses throughout the country
are paying needlessly high unem -
ployment insurance rates because of
ignorance , neglect , or both .
State laws vary ; but essentially , an
employer who files a report to
determine status and is advised that
liability exists for state unemployment
insurance , is in effect establishing an
account with the State Unemploy-
ment Insurance Fund . A rate is
assigned for the payments to be
made each quarter based on taxable
payroll .
All contributions (a misnomer for a
forced payment) are credited to the
employer's account. Any payments
made to an eligible terminated
employee are charged against the
account.
If at the end of a specified
accounting period , the pay -outs
exceed the amounts paid to the fund ,
the rate is raised for subsequent
periods unt il such time as the
accounts shift over to a credit
balance .
Like insurance companies , states
don 't want to payout more than they
take in , taking into account ad-
ministrative costs and overhead .
To see how you can fall into the
unemployment insurance tax trap,
let's take the case of a businessman
we'll call Tom Blake .
[n business several years with a
relatively stable work force and no
charges against his account (all
terminated employees left voluntarily
and there were no firings) the rate set
by his state for his account was 1 % of
taxable wages up to $6000 per
employee annually .
Blake had a taxable payroll last
year of $36 ,936 and paid $369 .36 to
the state as unemployment insurance
contributions .
Early in the year one of his
employees gave notice of leaving
and asked Blake for a favor - not to
contest the granting of unemploy-
ment benefits- which in this case
amounted to $90 per week . State
law provided for 26-week payment ,
but because of high unemployment
in the country , federal unemploy-
ment decision was that payments
should be made for another 13
weeks , thus the employee received
39 weeks of unemployment in-
surance benefits for a total of $3510 .
This sum far exceeded the few
hundred dollars paid by Blake into
the fund . [n the early years the
payroll was far below the $36 ,936
resulting in very small payments for
prior years .
At the beginning of the following
year , he got a shock . A notice of rate
for the new year indicated that
forthcoming payments would be at
the rate of 4 .5% .
Based on an approximate taxable
payroll of $45 ,000 for the new year
(based on some raises and hiring of a
part -time worker) the payments
would amount to $2025 , or $1575
more than would be paid if he hadn't
agreed to be a "good guy ." And ,
because the contributions would not
erase the deficit in his account in one
year , it was likely that he'd get stuck
with the 4 .5% rate for at least
another year .
[n some states the employer is sent
a notice that unemployment benefit
payments have been approved for a
named worker , and if no objection is
PLAY METER, July, 1979